Merkel, German ‘Tiger Mom’

BERLIN — Angela Merkel, the most powerful woman on earth, has governed Germany, the economic superpower of Europe, for almost 10 years. She is by far the European leader with the most experience in office.

As Stefan Kornelius, her biographer, points out, she has seen many of her European colleagues come and go and has witnessed the transition from George W. Bush to Barack Obama and from Hu Jintao to Xi Jinping. One can confidently say that she is the "last woman standing."

However, the jury on her legacy is still out. The three governments she has led have been overshadowed by one word: crisis; and since the crisis is still ongoing — as the dramatic events in Greece show — no-one knows whether she will go down in history as the savior or destroyer of the euro. Ultimately, as she repeatedly warns, “if the euro fails, Europe fails,” and by the same logic: Merkel fails.

What is overlooked in Europe is how much of her management of the eurozone crisis has been shaped by her China experience. She has visited the Middle Kingdom in almost every one of her years in office, and this has influenced her. She has personally witnessed the enormous industrial development of this Asian giant — in just one decade, and at incredible pace. Where before there were rice paddies, there are now glassy skyscrapers. She has also noticed that an increasing number of Chinese can afford to buy German luxury cars, not on credit, like most Southern Europeans, but with hard earned cash. She has been impressed by the hunger for progress and the dynamism of Chinese society, not only in Beijing and Shanghai, but also in second- and third-tier cities. (She regularly visits German factories in different provinces to get a better grasp of the country.) Hence, whenever she would come back from China to the Old Continent to “fix the euro” she would have these images present in her mind.

Merkel has realized that in an increasingly globalized, multipolar and competitive world, Europe needs to undertake deep reforms in order to maintain its living standards. In an aging continent, improving productivity, competitiveness, innovation and dynamism are vital to preserve the most precious European asset: the welfare state. This is the reason why she constantly repeats the “7-20-50” formula. Europe has seven percent of the world’s population, roughly 20 percent of global GDP, and 50 percent of the world’s social spending.

These rather unbalanced percentages are difficult to sustain. Europe will have to learn to manage its decline, one that is clearly visible in its weakest economies. As Raghuram Rajan explains in his excellent Fault Lines, this crisis is but the latest hint of the tectonic shift from the West to the East of productive and economic power. Emerging Asia has added over 500 million new middle-class consumers to the world economy (this is roughly the population of the EU), and out of those, 300 million (the population of the US) are Chinese. These workers are in direct competition with their European counterparts and a great proportion of the latter are losing.

Globalization is the principal reason why real wages have stayed stagnant in the EU and US since the late 1970s. Since then, Western companies have either moved their manufacturing to Asia, China being their preferred destination, or threatened their workers with doing so if they wanted to keep their jobs. In parallel, in order to keep consumption levels high, the ever sophisticated financial sector in the West has provided these workers with credit lines so that they could continue buying their houses, cars, TVs and vacations. This led to a huge accumulation of debt. And too much debt is precisely at the core of the eurozone crisis.

German Chancellor Angela Merkel (front) and her guest, Prime Minister of China Li Keqiang (not in frame), shop at a supermarket. Photo by EPA

The big question is what to do with this debt. Many, especially in the Anglo-Saxon world, have told Merkel she should be magnanimous and either write it off or start a Marshall Plan to help the cash-strapped South. She has done none of this. Applying haircuts on the debt or throwing money at the problems will not help Europe face the enormous challenge that China and the rest of Asia represent. The only way to remain competitive is to undertake structural reforms, and since Germany has been reluctant to impose those on its neighbors, Merkel has mostly delegated the disciplining stick to the financial markets.

She is convinced the leaders of the South will only implement structural reforms if they see the yield spreads between their sovereign bonds and the German bund widen. It was through this market pressure that she got rid of Silvio Berlusconi in Italy and convinced Prime Ministers Zapatero and Rajoy to introduce reforms in Spain. Unfortunately for her, this market discipline does not apply anymore to Greece, which now depends only on public financing. This is highly disturbing for her. It obliges Germany to take a more active disciplining role, and thus exposes her to more criticism.

Merkel has great respect for the Chinese. As Javier Solana, the former foreign affairs representative of the EU, has recognized: “It is very difficult to find a Chinese leader and diplomat who is incompetent.” This, she finds, is not always the case in Europe. The lack of knowledge about China among the European elite must irritate her. European society is still inward-looking, and if it looks out, it always turns to the US. China is generally ignored. Its rise is seen with such trepidation that most European leaders and intellectuals ignore it because they do not know how to handle it. Things are different in Germany. There is a great desire to understand and analyze China. An increasing number of German political leaders and businessmen take China seriously. They recognize that the Chinese model has been more successful than expected and thus needs to be reckoned with. But they are not afraid of it. They still think that Europe can compete with China, not on salaries, but on innovative and technological capacity.

This is the reason why Merkel insists so much on introducing structural reforms in Greece, the weakest link in the rich eurozone. She knows that in the long-term, eventually, the stronger parts of Europe will have to help the weaker parts through more solidarity. But she is convinced that before we get there, there is enormous productive, creative and innovative potential in the South of Europe that can be stimulated. And for that to happen, she thinks she has to be a Chinese Tiger mom. “Tough love” is the best strategy.

Miguel Otero-Iglesias is Senior Analyst at the Elcano Royal Institute in Madrid and currently Visiting Research Fellow at the Mercator Institute for China Studies in Berlin.

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Dindu Nuffins

“It is very difficult to find a Chinese leader and diplomat who is incompetent.”

Surreal timings. Today, a few hours ago, the Chinese government just lost at least half a trillion RMB while trying to lift its stock market by government decree. Buy high. Sell low. That’s brilliant.

The Chinese have absolutely no idea what they’re doing. Complete bedlam.

No mention in your article of the $28 trillion in USD that Chinese banking system minted in six years. The Chinese miracle was about the fastest-growing debts in history. Trillions of new lending from state-banks, and no one able to pay it back.

Posted on 7/27/15 | 10:20 AM CET

hari naidu

Merkel understands mainland China because she is a product of GDR – even if she was born in Hamburg. Her entire growing life was spent under East German communism – ie. she therefore understands from where China is coming and how it’s transforming Chinese society and culture.

Greece is a sad case of non-western culture and tradition. It’s a product of Ottoman culture and society. Current problems with Tsipras illustrates the cultural chock between western European culture and Greece, in particular. Therefore, if Greece is not able and willing to lift its own burden and join the west – it’s better to allow Grexit, methinks.

Posted on 7/27/15 | 5:37 PM CET

Ironwoker

“This is the reason why Merkel insists so much on introducing structural reforms in Greece, the weakest link in the rich eurozone. ”

That’s exactly what europeans wanted all along. The Chinese way of life. Yeah, Merkel got us there, yes sir, now we should expect public executions on stadiums for alleged corrupted enemies of the Union.

Posted on 7/27/15 | 5:53 PM CET

Damian

In the last 7 years Angela Merkel, with no democratic legitimacy, has imposed her view to all Europe. Today we must recognise that it’s a disaster, Europe is the only place in the world where there’s not economic recovery. Please, stop celebrating Angela Merkel as a great leader.

Posted on 7/28/15 | 11:32 AM CET

Fixpir

@Damian :
You should give a dictionary with your posts, and those of your friend. Here is a short attempt : With n democratic legitimacy in Damian means I don’t agree with this elected person in plain English. A great democratic victory ! in Damian means Give me more money ! in plain English.

An undemocratic capitalist rent seeking person in Damian means the other guy want to spend more than what he earns with his work in plain English.

A great victory against German imposed austerity in Damian means I want to spend more than what I earn with my work in plain English.

Etc …

Posted on 7/28/15 | 2:43 PM CET

Sven Stemmildt

It is quite funny that the only reaction to any hint that China could become – or be – a relevant competitor to Europe, who is able to rip us off all our comforting achievements, is to say “look how awful it is in China!”

Yes, it is a tyranny, yes, they let their workes starve, yes, they murder petty criminals instead of installing a working legal system. Yes, yes, YES! But – no one ever demanded to copy this.

One thing you have to acknowledge: they make the – economically – best of their rotten system. You can call this nauseating, and I am with you on this. But the fact that they are our competitor, and that we have to succeed if we want to maintain our social security system, our culture and our democracy – which all have to be fueled with money – just cannot be denied.

Our success can’t be based on cheapness. People who are ruthless enough to exploit prisoners in the production of children’s toys can’t be beaten there. Everyone knows this – first of all Ms Merkel. We have to be better in a different way. And it is very easy to see how: good governance.

What is the real difference between Greece and Germany – or the scandinavic countries, or netherland? It is not the debt, this is just the result of the real cause. It is a legal system which works, a public service which works.

Austerity was always only one half of the reforms which were demanded of the “crisis states”. Unfortunately, it was the only thing on which the “donor states” had a lever, because of “national sovereignty”. Only Greece has pushed it so far that the other European nations threw all their restraint in the wind and forced it to do something, and again: if you look closely on the measures which were imposed on Greece, only half of it was austerity.

Greece and many other nations (by the way: also Germany) still have to realise that the cosy times are over, and we have to take action, if we want to keep the most important parts of our way of life alive. Ms Merkel is one of the few leaders who have realised it, and at least try to do something (even if I think she doesn’t do enough, in fear of her electorate).